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Facts
The assessee claimed Rs. 6 lakhs as professional fees paid to Mr. Ravi Sonalkar, which was disallowed by the Assessing Officer (AO) and confirmed by the CIT(A). The AO found that Sonalkar did not offer this amount as income in his return, and the assessee failed to provide sufficient evidence like bank statements, Form 26AS, or TDS proof, relying solely on self-made invoices.
Held
The Tribunal upheld the disallowance, stating that the assessee did not discharge the onus to prove that the expenditure was incurred wholly and exclusively for business purposes under Section 37 of the Income Tax Act. The submitted invoices were found to be unreliable, lacking proper details and signatures, and the payment was not reflected in the payee's income or the assessee's bank statements.
Key Issues
Whether the disallowance of professional fees paid to a director, claimed as business expenditure under Section 37, was justified when the assessee failed to provide adequate proof of the transaction and business purpose, and the payee did not report it as income.
Sections Cited
Section 250 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 37 of the Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Addl./Joint Commissioner of Income Tax(Appeal)-3, Chennai passed under section 250 of the Income Tax Act, 1961 for the A.Y.2017-18dated 28.07.2025 emanating from the Assessment Order passed under section 143(3) of the Act, dated 26.12.2019. The Assessee has raised the following grounds of appeal :
1. On the basis of facts of the case and in law the ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer of disallowing Rs 6,00,000 (Rs Six Lakhs) out of professional fees. This action is unjustified and unwarranted.
2. Without prejudice to the above the ld. Commissioner of Income Tax (Appeals) has erred on facts of the case and in law in confirming the disallowance of the part payment of professional fees paid to the director of the company.
The Appellant craves leave to add to and/or amend, modify, withdraw any of the grounds of Appeal.”
Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) filed a paper book. Ld.AR submitted that the amount of Rs.6 lakhs duly reflects in the ledger account. Ld.AR submitted that the Ledger Account is at page no.17 to 20 of the paper book. Ld.AR submitted that therefore Assessing Officer has erred in making addition of Rs.6 lakhs.
Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income for A.Y.2017-18 electronically on 29.11.2017. Assessee’s case was selected for 2 complete scrutiny. Accordingly, the Assessing Officer has issued Assessee. The Assessment Order was passed on 26.12.2019 under section 143(3) for A.Y. 2017-18. During the assessment proceedings, Assessing Officer noted that Assessee has claimed payment to Mr.Ravi Sonalkar as professional fees. Assessing Officer verified the return of income filed by the Ravi Sonalkar and noted that he has not shown the entire amount of Rs.10,50,000/-. Assessing Officer also asked assessee to justify the alleged payment of Rs.10,50,000/- along with TDS details. It was noted by the Assessing Officer that Mr.Ravi Sonalkar has not offered Rs.6 lakhs received from Assessee in his Return of Income. Accordingly, Assessing Officer made an addition of Rs.6 lakhs.
Aggrieved by the addition, Assessee filed appeal before the ld.CIT(A). Ld.CIT(A) elaborately considered the submission of the Assessee. Ld.CIT(A) noted following facts in the order : - Ravi Sonalkar has not offered Rs.6 lakhs as income in the Return of Income filed. - The Form No.26AS does not show Rs.6 lakhs. - Rs.6 lakhs do not appear in the bank statement of the Assessee as payment to Mr.Ravi Sonalkar. - Evidence of TDS on Rs.6 lakhs allegedly paid to Ravi Sonalkar has not been filed. - Assessee has merely relied on the Ledger Account and some 3 invoices, but failed to prove the actual transaction.
5.1 Therefore, ld.CIT(A) confirmed the addition of Rs.6 lakhs. During the hearing, ld.AR again relied on the invoices. It is noted that these invoices are self-made invoices. They do not have any serial number, there is no signature of any official or officer of the Assessee Company, hence, these invoices cannot be relied upon.
During the hearing, we specifically asked ld.AR the nature of services provided by Mr.Ravi Sonalkar. Ld.AR could not answer. We also asked ld.AR to prove that the Rs.6 lakhs was spent wholly and exclusively for the purpose of business of the assessee. Ld.AR admitted that he does not have any specific evidence except the invoices.
Assessee has debited the impugned expenditure of Rs.6 lakhs in the profit and loss account and claimed u/s.37 of the Act. The pre-condition for any expenditure to be allowed u/s.37 is that the expenditure should be wholly and exclusively for the purpose of the business of the assessee. The onus is on assessee to prove the same. In this case, Assessee has not brought on record any evidence to prove that impugned expenditure was wholly and exclusively for the purpose of the business of the assessee. It is also noted that the Assessing Officer and ld.CIT(A) that Mr.Ravi Sonalkar has not 4 offered the said amount as income in his return of income. Mr.Ravi Sonalkar is Director of the Assessee Company. It is also noted that said expenditure does not appear in the bank statement of the Assessee. These facts have not been rebutted by Assessee. Therefore, for all the reasons discussed above, the disallowance of Rs.6 lakhs is upheld. Accordingly, Ground No.1 and 2 raised by the Assessee are dismissed.
Ground No.3 is general in nature and does not need any adjudication, hence, dismissed.
In the result, appeal of the Assessee is dismissed. Order pronounced in the open Court on 08 January, 2026.